ACBU 2223 Chapter Notes - Chapter 7: Expense
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Hi-Tek Manufacturing Inc. makes two types of industrial component partsâthe B300 and the T500. An absorption costing income statement for the most recent period is shown below:
Hi-Tek Manufacturing Inc. Income Statement | |||
Sales | $ | 1,761,600 | |
Cost of goods sold | 1,249,034 | ||
Gross margin | 512,566 | ||
Selling and administrative expenses | 580,000 | ||
Net operating loss | $ | (67,434) | |
Hi-Tek produced and sold 60,300 units of B300 at a price of $21 per unit and 12,700 units of T500 at a price of $39 per unit. The companyâs traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the companyâs two product lines is shown below:
B300 | T500 | Total | ||||||||||
Direct materials | $ | 400,500 | $ | 162,200 | $ | 562,700 | ||||||
Direct labor | $ | 120,000 | $ | 42,700 | 162,700 | |||||||
Manufacturing overhead | 523,634 | |||||||||||
Cost of goods sold | $ | 1,249,034 | ||||||||||
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tekâs ABC implementation team concluded that $55,000 and $101,000 of the companyâs advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the companyâs manufacturing overhead to four activities as shown below:
Manufacturing | Activity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Activity Cost Pool (and Activity Measure) | Overhead | B300 | T500 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Machining (machine-hours) | $ | 209,884 | 90,600 | 62,600 | 153,200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Setups (setup hours) | 152,650 | 75 | 280 | 355 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Product-sustaining (number of products) | 100,600 | 1 | 1 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other (organization-sustaining costs) | 60,500 | NA | NA | NA | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total manufacturing overhead cost | $ | 523,634 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Hi-Tek Manufacturing Inc. makes two types of industrial component partsâthe B300 and the T500. An absorption costing income statement for the most recent period is shown below: |
Hi-Tek Manufacturing Inc. Income Statement | ||
Sales | $ | 1,751,700 |
Cost of goods sold | 1,223,464 | |
Gross margin | 528,236 | |
Selling and administrative expenses | 560,000 | |
Net operating loss | $ | (31,764) |
Hi-Tek produced and sold 60,200 units of B300 at a price of $21 per unit and 12,500 units of T500 at a price of $39 per unit. The companyâs traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the companyâs two product lines is shown below: |
B300 | T500 | Total | ||||
Direct materials | $ | 401,000 | $ | 162,400 | $ | 563,400 |
Direct labor | $ | 120,900 | $ | 42,400 | 163,300 | |
Manufacturing overhead | 496,764 | |||||
Cost of goods sold | $ | 1,223,464 | ||||
The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tekâs ABC implementation team concluded that $58,000 and $107,000 of the companyâs advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the companyâs manufacturing overhead to four activities as shown below: |
Manufacturing | Activity | ||||||||||||||||
Activity Cost Pool (and Activity Measure) | Overhead | B300 | T500 | Total | |||||||||||||
Machining (machine-hours) | $ | 209,884 | 90,400 | 62,800 | 153,200 | ||||||||||||
Setups (setup hours) | 125,580 | 79 | 220 | 299 | |||||||||||||
Product-sustaining (number of products) | 100,800 | 1 | 1 | 2 | |||||||||||||
Other (organization-sustaining costs) | 60,500 | NA | NA | NA | |||||||||||||
Total manufacturing overhead cost | $ | 496,764 | |||||||||||||||
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2. | Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.) | |||||||||||
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3.)
Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Round your intermediate calculations to 2 decimal places and "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3) and other answers to nearest whole dollar amounts.)
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